Everything You Should Know About Crowdlending

Crowdlending
is a rapidly growing market for small businesses and individuals looking to
borrow or lend money.

According
to crowdlending experts, it has the potential to compete with the dominance of
the conventional banks and other financial institutions such as credit unions
but involves some degree of risks for both borrowers and lenders.

Peer-to-peer
lending, in its simplest form, uses a web-based platform to match borrowers and
lenders directly.

In this form, lenders loan funds directly to the borrowers. The site matches lenders and borrowers using proprietary algorithms, more or less like a dating site, to access the credit risk of potential borrowers and establish the interest rate to be charged.

It
also offers the mechanism to transfer the funds from the lender to the
borrower. The same mechanism allows the borrower to make repayment with
interest as per the agreed terms.

European players in the P2P market include Mintos, Grupeer, Crowdestate, and Monethera.

How Does P2P Lending Work?

The
process begins with borrowers filing an online loan application. The borrower
will need to enter the loan details and verify his or her identity. The p2p
platform will then check the credit history of the borrower according to the
financial information provided.

Using
this financial information, the platform will assign an interest rate depending
on the size and the duration of the loan.
After a short period of time, your credit will be in the market for
possible lenders.

On
the other end, the investors get to browse for loan requests from the
borrowers; just like an online shop but for possible investments. The lenders
are provided with the cost, interest rates, and the reason for the loan.

The lender then can finalize the loan when he or she is satisfied with the terms provided and confident with the credentials and purposes of the borrowers. The lender can either fund a whole loan request or pool with other lenders to complete the funding.

Pros and Cons of Crowdlending

For borrowers, P2P lending is the best and generous alternative marketplace to find loans. Some of the benefits of peer to peer lending to borrowers include:

The loan application is simple and straightforward

Unless you have massive credit issues, your loan can be approved in just hours. However, the funds could take longer to reach your bank account because this would depend on the lenders. Crowdlending platforms are also more secured, therefore no need to worry about the risk of exposing your identity or identity theft.

Crowdlending is more lenient with credit credentials

Though credit score matters, you can still get loan approval with a few bumps, but with a possibility of the high-interest rate. The worse your credit history is the higher the interest rate is going to be. However, there is a very slim chance of you getting approved for a bank loan or a credit card, making p2p lending the best option.

You can borrow money for whatever reason

You can apply for loans to cover your medical emergency bills, vacation, buying a new vehicle, or refinancing debt. A platform such as Crowdestate approves loans for real estate development, while Mintos approve personal loans for such things as vacation and luxury. For any reasonable purpose, Crowdlending provides you with a chance to get funded with similarly reasonable demands.

The maximum loan amount is smaller than in banks

Crowdlending may not be your top option if you are thinking of buying a property since most of the loan offers are a maximum of $500,000 only. And even so, it is hard to get approved for that amount without a staller credit history to back up your application. This limit is aimed to protect the lenders who risk a significant amount of money on the platform. In this case, your best option will be a bank loan.

Lots of interest to choose from in Crowdlending

Investments can reach up to 30 percent for some loans, though this comes with steeper prices that may take longer to repay. This is much higher than the normal 0.10% to 5% rates you will find in savings or time deposit accounts in traditional banks.

Related

I am a multiple Award-winning blogger, CEO of Entrepreneur Business Blog, Chief Evangelist of Ebusinessroom Ventures, Lead Coach of The Excellent Entrepreneurs' Network (TEEN) and Convenor of #NaijaSitUp.
My business is to help you start, manage and grow a profitable and sustainable business using digital marketing strategies.
I have been featured and mentioned on platforms like, BloggingTips, StarterStory, StatusBrew, Realty Times, Emerald TV, SmartBCamp, Blogging from Paradise, Write Worldwide, Enterprise Boom, Atang Magazine, etc. In 2019, my blog won the Best Digital Media Award from AB Afrikpreneur.
When you want to hire a professional to handle your online marketing, I'm your go-to-expert you can speak to. In 2019, I won the Blogger of the Year from the Global Excellence in Marketing Awards, USA and my brainchild, EBB won the Best Digital Media Award at the AB Afrikpreneur Awards.
You can connect with me on Facebook, Twitter, Instagram, Pinterest and LinkedIn with this handle, @EmenikeNg